Aggregate price effects of institutional trading: a study of mutual fund flow and market returns

We study the relation between market returns and aggregate flow into U.S. equity funds, using daily flow data. The concurrent daily relation is positive. Our tests show that this concurrent relation reflects Row and institutional trading affecting returns. This daily relation is similar in magnitude to the price impact reported for an individual institution's trades in a stock. Aggregate flow also follows market returns with a one-day lag. The lagged response of flow suggests either a common response of both returns and now to new information, or positive feedback trading. (C) 2001 Elsevier Science S.A. All rights reserved. JEL classification: G23; G14.